Insight from Colin Twiggs. I am not a licensed investment adviser. Please read the Disclaimer.

Ukraine should sell its gas pipeline to stabilize the region

From OilPrice.com

Gas supply, and the threat to that supply for Europe, is what has forced Russia to move aggressively on multiple fronts to defeat Ukraine in its efforts to modernize and westernize its economy, its future, and its way of life.

So, how to start the liberalization process? Ukraine has argued that its gas transportation system is a strategic asset. Business-minded people take issue with this interpretation, which ignores the commercial potential of the pipeline system. Now that we have come full circle in a long-brewing Ukraine-Russia gas war, perhaps the pipeline should be considered “strategic” — if not in the way the Ukrainian authorities have long understood. The pipeline system, worth $20 to $30 billion, can indeed play a strategic and tactical role in resolving Ukraine’s crisis with Russia, but only if it’s sold off.

Ukraine should sell 50 to 75 percent of it for cash to a consortium involving the EU, U.S. and Russia and operated by a U.S. business enterprise, preferably based in Houston. This can only happen if Russia agrees to remove troops and other proxies in eastern Ukraine and then works with Ukraine to secure the border and cease all low-intensity conflict efforts, including on the ground, and in cyberspace and the trade arena….

Post navigation

5 thoughts on “Ukraine should sell its gas pipeline to stabilize the region”

The more appropriate question is whether O’Droner will. After all, it is he who wants to see South Stream sabotaged to perpetuate Ukraine’s extortion racket and to sell US shale gas to Europe. Both ambitions are doomed to fail. Running an extortion racket against Russia is not going to be a pushover like the Gulf protection racket. And the US really has no shale gas to export, not after Monterey’s recoverable reserve estimates got slashed by 96%.

The very notion Putin will be bothered about Ukraine becoming a competitor is laughable. Ukraine has an estimated 5.4 trillion cubic meters of gas, including shale gas. In 2012 alone, it consumed 1.8 trillion cubic meters. Without Russian gas, Ukraine will run through its reserves in three short years. Russia has close to 1,700 trillion cubic meters of gas. Not counting massive offshore reserves under the Arctic Sea and the Sea of Okhotsk which are still being assessed. Alas, the maths doesn’t favor the constitutional law professor.

Let’s see. Russia should remove its troops and proxies, forgive Ukraine’s existing $4.5 billion gas debt and pay cash for the gas transmission to be ‘allowed’ to continue to supply gas to Europe. In return, the West will get to keep its own proxies in the Ukrainian government, a US-EU-Russia (rather generous to include Russia) consortium based in Houston would take over Ukraine’s gas pipelines, half of the Ukraine’s state-run company that owns the pipelines would be sold off to Western interests, and the other half would be shifted to London. What could be fairer?!

The only fly in the ointment is Russia may choose to bypass Ukraine permanently, as Gazprom has already said. Expect all sorts of skulduggery, including sponsored terrorism, to sabotage South Stream. Hopefully, Russia will fare better than the Gulf States in breaking free of protection rackets. Some European dream, some Western way of life!!

I would leave the US out of it. This has to be resolved between Europe and Russia. My primary concern is the welfare of the Ukrainian people who are being used as a political football, with the US/EU on one side and Gazprom/Putin on the other. Both have used asymmetric tactics: Maidan protestors and little green men. What is in the best interests of the Ukrainian people? I would suggest:

To restore political stability

To establish a representative government

To end crony capitalism

And fund a major infrastructure program to restore the economy

Selling off the gas pipelines is one way to finance redevelopment. Joint Russian/EU ownership may be the answer.
But let the 100th anniversary of the outbreak of WWI serve as a reminder to political leaders in the East and West. They are playing with forces beyond their control and a seemingly innocuous action can have far-reaching unforeseen consequences.

In an apple to apple comparison, it would be US/EU vs Russia. In an orange to orange comparison, it would be Obama/EU vs Gazprom/Putin. Apples and oranges don’t mix well.

Leaving the US out of this or any other conflict in the world that involves someone else’s natural resources is wishful. It certainly is playing with fire coaxing and coercing a reluctant EU into a war it does not want. Europe has had enough wars. I am surprised at Merkel’s about turn after her Washington visit. Maybe she was shown the goods NSA has on her. The best interests of the Ukrainians lie in a Finland solution. Ukraine should also abandon its gas middleman extortion racket and focus instead on developing its own resources, especially gas and agriculture.

For Ukraine or any other nation to develop peacefully along a path of its own choosing, the US as the Great Decider has to go. The US turned rogue largely due to dollar hegemony, so the key lies in getting rid of that. Its creative destruction is proving too costly for the world.